What is Bitcoin
Bitcoin and similar currencies are virtual currencies, or cryptocurrencies. A common feature of this type of currency is that they are not backed by any central bank, which means monetary policies cannot mitigate potential devaluation. Bitcoin exists in a decentralized electronic database called blockchain. Bitcoin can be bought and held as an investment or used as a payment system for both virtual and non-virtual goods and services.
Blockchain keeps a record of all transactions, tracing back to the first transaction. All transactions occur between virtual wallets, which are generally unidentifiable. However, in the U.S., tax authorities won a court ruling in 2017 requiring Bitcoin providers to disclose customer information, enabling tax authorities to monitor transactions and apply correct tax treatment.
Tax Treatment of Bitcoin
Financial transactions made with Bitcoin or other cryptocurrencies, instead of traditional currency, will be considered as if made in a currency recognized by the national bank. For example, wage payments in Bitcoin are still subject to tax, and the employer must report in Danish Kroner; the same applies to the taxpayer's return.
Business Activity or Speculation
From a financial/economic perspective, most virtual currencies, including Bitcoin, are used for speculative purposes. When determining whether Bitcoin transactions should be treated as speculation or business activity, the Tax Agency will assess each case individually.
Business Activity:
In tax terms, "business activity" means Bitcoin is acquired for resale at a profit by a taxpayer whose occupation involves trading in Bitcoin, among other activities.
Speculation:
"Speculation" refers to the acquisition of Bitcoin with the aim, or among other aims, of making a profit on resale. This is not part of systematic Bitcoin trading but rather involves occasional transactions outside the individual’s occupation.
BitClub Network
The Tax Agency is aware of the spread of BitClub Network in Greenland. The Tax Agency has requested the Gambling Authority to determine whether BitClub Network qualifies as a pyramid scheme under Section 11 of the Greenland Gaming Act. For further questions, please refer to the Gambling Authority.
Clarification and Future Outlook
Bitcoin and other cryptocurrencies are relatively new and continue to evolve. The Tax Agency will closely monitor developments and provide guidance as needed.